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Commentary
Biden Should Simplify The Tax Code. Trump's Taxes Are Just One More Reason Why
Donald Trump bragged that avoiding taxes “makes me smart.” He also suggested his Secret Service code name should be Humble. So perhaps boundless humility made him fight like a wounded wolverine to conceal the braininess displayed in his tax returns?
Nah. More likely, he dreaded the sunshine flooding the dark financial crannies of Trump Inc. since the Manhattan District Attorney wrenched the returns from him in their legal tug-of-war, assisted by Supreme Court muscle.
The filing deadline this year has been postponed a month, to May 17, because of the pandemic. Soon thereafter, average taxpayers will begin the annual bender to forget the tortuous 13 hours their returns consumed (or to forget the preparer’s bill). By then, our ex-president may be preoccupied with lawyers’ fees, not taxes, to defend against fraud charges.
However great or small Trump’s level of personal corruption, a corrupted accomplice already stands convicted: the tax code.
“The portrait of a man who earned hundreds of millions of dollars, lived a life of comic excess and yet, in many years, paid nothing in federal income taxes is an indictment of the federal income tax system.” So editorialized the New York Times last fall after revealing Trump’s years of microscopic or no liability. The Times editors called for bolstering the IRS budget so that its audits of millionaires — the working poor are probed as much as the affluent — would be more than a Washington punchline. That’s fine as far as it goes, which isn’t close to far enough.
However great or small Trump’s level of personal corruption, a corrupted accomplice already stands convicted: the tax code.
The editors should exhume their 1992 endorsement of revolutionary tax simplification, riffing off then presidential candidate Jerry Brown’s flat tax plan. Originally hatched by conservative academics, the flat tax promised to denude personal and business taxes of byzantine loopholes with a return fitting on a postcard.
Three decades on, we’re still waiting. The Times noted last fall:
The government allows income to be sheltered from taxation for hundreds of different reasons … the formidable complexity of the tax code makes it difficult to tell when wealthy taxpayers have crossed legal lines. For the rich, taxation often becomes a kind of structured negotiation between the taxpayer’s experts and the government’s experts.
Fraud charges against Trump would hand Democrats a priceless public relations victory, as they pitch higher taxes on the affluent to pay for Joe Biden’s agenda. Stick it to those fat-cat deadbeats! Yet Trump’s bracket will never pay their full and fair share unless Congress and the president burn down the bewildering forest of breaks in which tax-dodgers, legal and otherwise, hide. (The wealthiest Americans conceal at least 20% of their income.) Either we make people law-abiding angels or we simplify a convoluted code Jerry Brown called a ”banquet feast of corruption.”
Only the second is possible. Depriving rich filers of loopholes, thereby exposing more of their income to taxation, would raise sufficient sums to lower rates and make a down payment towards Biden’s initiatives and/or the deficit.
Notice “lower rates,” plural. Proposals for a pure, single-rate tax on individuals would deliver huge windfalls to the wealthy, and that’s a losing political bet, as a generation of Republican candidates and Democrat Brown learned. Adding a surcharge atop the flat rate for higher earners, as some radical-left thinkers proposed in 1992, would improve progressivity and the political odds. (One of the flat tax’s academic authors is open to adding a second bracket as ballast against today’s soaring inequality.)
For the rich, taxation often becomes a kind of structured negotiation between the taxpayer’s experts and the government’s experts.
Editorial Board, The New York Times
Plausible reform also would include a hefty personal exemption to protect the lowest-income Americans from owing much tax, or any. These changes would lengthen that postcard return negligibly.
Many loopholes fertilize special rather than public interests. Real estate wheeler-dealers like Trump drew the Times’s special ire last year: “It’s relatively easy for real estate investors to use past losses to offset income, to defer income and to avoid reporting some kinds of income. Best of all, the law lets investors claim a building is depreciating in value — a theoretical loss of money — even as the actual value increases.”
Other breaks are sacrosanct to voters, on the right and the left, and further down the income ladder. Brown shied away from ending deductions for charitable donations and mortgage interest, even though the former promotes charity in supporters’ imagination more than reality, while the latter overwhelmingly benefits the well-heeled.
Good government would fund good causes directly and transparently: with public spending, debated publicly. Remember also that Democrats have in the past proposed at least capping tax favoritism for mortgages. If limiting the break for McMansions stretches political possibilities to the breaking point for today’s left, its imagination has coarsened since 1992.
And the right? Various congressional Republicans have touted flawed flat-tax schemes. Seeking their support for thoughtful simplifying would let Biden strut bipartisan bona fides. More importantly, he’d have a shot at tax reform that would cancel Trump types’ reservation at corruption’s banquet.
Whether conservatives would collaborate with the president is admittedly a question, given that they now worship a “stable genius” who leaves them and everyone else holding the bag for his share of national defense, feeding the hungry and Uncle Sam’s other obligations.
